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<b><i> Penn National</i></b> and the Continuing Fight over the 'Continuous Trigger' Rule
For a generation, courts have confronted difficult issues involving insurance coverage for asbestos, environmental, and other long-tail claims. A threshold problem concerns which policies are “triggered” for coverage purposes where exposure may precede manifestation of injury or other damage by many years or even decades. An approach to the trigger issue first widely adopted in asbestos coverage litigation was the so-called “continuous trigger,” or in some jurisdictions “multiple trigger,” which deems all policies in place from initial exposure through final manifestation (in some cases, death) to have been triggered, on the theory that injury from asbestos exposure is continuous through that entire period. In jurisdictions in which a continuous or multiple trigger has been used in asbestos cases, the same approach has frequently been adopted in environmental cases based on similar reasoning. Indeed, because “continuous trigger” is coverage-maximizing, policyholders have made attempts to apply the same approach in other areas, with varying degrees of success.
A very recent decision from the Pennsylvania Supreme Court, Pennsylvania National Mutual Insurance Company v. St. John (“Penn National“), rejected such efforts in an environmental contamination case, finding environmental cases insufficiently similar to asbestos and limiting coverage to only one of four available policies. The court's analysis and the result suggest a narrow view of the policy concerns presented by asbestos cases, and an inhospitable climate for future cases involving environmental contamination, and potentially other long-tail liabilities, in Pennsylvania.
'Gray Water' Contamination
In 2002, two dairy farmers hired a plumbing company to install a new water management system on their farm. The system consisted of a wastewater drainage system and a separate freshwater drinking supply. Due to the negligence of the plumbing company and its contractor, the wastewater system allowed “gray water” containing natural and chemical waste byproducts to infiltrate the drinking water used by the dairy cows. Beginning as early as April 2004, the farm observed a decline in milk production and an increase in rates of health and reproductive problems with the dairy herd, including unusual illnesses and birth defects in the cows. Though the farm tested the herd's water supply regularly, the contamination was not immediately detected because testing was conducted at the wellhead rather than the contaminated holding tank. Finally, in March 2006, the dairy discovered the source of the problems and brought suit against the plumbing company. Penn National, 106 A.3d 1, 3-4 (Pa. 2014). The case was tried to a jury, which found in favor of the dairy farm and awarded nearly $3.8 million in damages. Id. at 4.
The plumbing company was insured by Pennsylvania National Mutual Casualty Insurance Company (“Penn National”), which had issued three-year-long primary CGL policies during the period July 1, 2003 through July 1, 2006, and one umbrella policy that covered the period July 1, 2005 to July 1, 2006. After the verdict, the plumbing company agreed not to pursue an appeal and the farm waived all claims against it, in exchange for Penn National's payments of the full limits of one of its primary CGL policies, or $1.2 million. The farm retained the right to seek the remainder of its award directly from Penn National under the other CGL policies. Id . at 4.
Penn National then filed a declaratory judgment action, arguing that only its 2003-2004 policy had been triggered because the injury first manifested in April 2004. The farm argued that the appropriate trigger was when they discovered the contamination in March 2006, which would have triggered both the primary and umbrella policies in place at that time. In the alternative, the farm argued that the plumbing company's liability triggered all four policies under a multiple trigger or continuous trigger theory of coverage. Id. at 4-5.
The policies in question were “occurrence” policies, meaning that Penn National agreed to cover “bodily injury” or “property damage” caused by an occurrence taking place during the policy period. Id. at 5. An “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. For purposes of the litigation, the parties stipulated that the water contamination constituted “property damage” under the policies and that no exclusions applied. They also stipulated that the property damage to the dairy herd took place during the policy period of each of the Penn National policies at issue. Id. at 6.
The trial court nonetheless held that all of the underlying events constituted a single occurrence, which took place when the effects of the improper installation of the water system first manifested in April 2004 in the form of diminished milk supply. Id. at 7-8. The trial court rejected the “multiple trigger” theory because Pennsylvania courts had to date declined to adopt that approach aside from latent disease cases such as asbestosis or mesothelioma. Id. at 8. The dairy farm appealed to the Pennsylvania Supreme Court.
Continuous Trigger and Environmental Contamination
A multiple trigger theory (similar to the continuous trigger adopted in other jurisdictions) had been approved in 1993 by the Pennsylvania Supreme Court in J.H. France Refractories Co. v. Allstate Insurance Co. That case involved large-scale asbestos liability that implicated policies over a period of many years. After reviewing the medical evidence before it, the court concluded that “all stages of the disease process [are] bodily injury sufficient to trigger the insurers' obligation to indemnify.” 626 A.2d 502, 507 (Pa. 1993). Accordingly, “all phases [of the disease] independently meet the policy definition of bodily injury” and all policies in place during any of the phases of pathogenesis, from initial asbestos exposure to progression of disease to manifestation as a recognizable disease, were triggered. Id.
The policyholder in Penn National argued that the case presented a set of facts that called for an extension of the principles in J.H. France beyond the asbestos context. Certainly, a number of other courts have extended the same policy rationales present in asbestos cases to environmental cases and concluded that a multiple trigger theory under which policies were triggered because of continuous damage across many policy periods was appropriate.
In their briefing to the Pennsylvania Supreme Court, the Penn National appellants cited the growing “weight of authority” in favor of continuous trigger in environmental contamination cases in addition to asbestos cases. Brief of Appellants at *32, Penn National, 106 A.3d 1 (No. 09-6388) 2013 WL 4046303 (citing Montrose Chem. Corp. v. Admiral Ins. Co., 913 P.2d 878, 893 (Cal. 1995) (en banc)); see also Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., 819 A.2d 410, 415 (N.J. 2003) (noting the “growing number of states that have adoptedthe continuous trigger theory” in the context of progressive property damage due to contamination). Appellants also identified a factually similar case in Wisconsin Electric Power Co. v. California Union Insurance Co., in which a power supply system installed on a dairy farm emitted stray voltage for over a decade and caused decreased milk production and ill health in the dairy's cows. The Wisconsin Court of Appeals, the state's intermediate appellate court, held that continuous trigger was applicable. 419 N.W.2d 255, 258 (Wis. Ct. App. 1987).
The Vermont Supreme Court has also approved the use of a continuous trigger in environmental pollution cases in place of a manifestation trigger, declaring it “the approach most compatible with the standard occurrence-based policy and the reasonable expectations of the insured in cases involving long-term environmental damage.” Towns v. No. Sec. Ins. Co., 964 A.2d 1150, 1163 (Vt. 2008); see also Montrose Chem. Corp., 913 P.2d at 903 (“[A]pplication of a manifestation trigger of coverage to an occurrence-based CGL policy [in the context of claims of progressively deteriorating damage or injury] would unduly transform it into a 'claims made' policy.”)
Indeed, in certain environmental cases, the name of the trigger theory being applied has not necessarily been determinative, with some courts applying the “injury-in-fact” approach for trigger in a manner indistinguishable from a continuous trigger. In EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd's, the New Hampshire Supreme Court was called upon to decide what trigger theory applied in an environmental pollution case. The court determined that, based on the policy language, coverage was triggered by an “injury-in-fact,” or a showing that bodily injury or property damage occurred during the policy period. 848 A.2d 715, 720 (N.H. 2004). However, because the evidence in the case showed that contamination was continuous, “the 'injury-in-fact' theory may also operate to trigger coverage on a continuous basis.” Id. (internal quotations omitted). In so holding, the court cited expert testimony that the tar released by EnergyNorth migrated for decades, causing continuous contamination to new surrounding areas ' essentially in the same way asbestos has been found to cause continuing damage to lung tissue once exposure has occurred. Similarly, with respect to other policies that “embodie[d] an exposure trigger, and where the alleged migration of toxic wastes [was] continuing, multiple exposures triggering coverage [were] also continuing.” Id. at 725.
In Public Service Company of Colorado v. Wallis & Companies, the Supreme Court of Colorado observed that “[c]onceptually, the injury-in-fact trigger and the continuous trigger are on the same continuum and are complimentary, rather than mutually exclusive.” 986 P.2d 924, 938 n.12 (Colo. 1999). The case, which went to trial, involved PCB contamination at a scrap metal yard. The trial judge instructed the jury that if it found the contamination was “a result of a continuous and progressive process,” then the policyholder was entitled to coverage under any policy in effect when the contaminants were initially released, or any contamination resulted from the release, or the scrap yard discovered the contamination. Id. at 928 n.2. In affirming, the Colorado Supreme Court noted that “[a]s a practical matter, the injury-in-fact trigger may produce the same result as a continuous trigger if damage is deemed to occur from the time the property is first exposed to the hazardous substance to until the damage is discovered.” Id. at 938 n.12.
By contrast, the New York Appellate Division applied “injury-in-fact” in an asbestos coverage case to implicitly reject the approach taken by these and other courts. In Continental Casualty Company v. Employers Insurance Company of Wausau (commonly known as the ” Keasbey ” case), the court determined that the injury-in-fact trigger language in the policies would require each claimant to “ produce medical evidence that the point where asbestos fibers overwhelmed the body's defenses” happened during the policy period. 60 A.D.3d 128, 149 (N.Y. App. Div. 2008). The court dismissed as an “impermissible leap” the “conclusory assertion: claimant was exposed, claimant developed full blow-blown asbestos-related injury decades later, ergo, injury was sustained at time of exposure.” Id . at 150. The Keasbey court thus held the policyholder to a stricter evidentiary standard than is evident in other asbestos or environmental contamination cases. New York courts have continued to take this approach in cases outside the asbestos context. See, e.g., Downey v. 10 Realty Co., 2009 WL 2844437 (N.Y. Sup. 2009), aff'd, 78 A.D.3d 575 (N.Y. App. Div. 2010) (mold).
The Rejection of a Continuous Trigger in Penn National
For several reasons, the Pennsylvania Supreme Court might have been expected to join other jurisdictions in expanding the applicability of continuous trigger to environmental pollution cases and, potentially, other long-tail claims. The policy language at issue in Penn National was nearly identical to that of J.H. France, suggesting that it should be interpreted in the same way. The water contamination presented some of the same characteristics as asbestos exposure. Finally, the parties even stipulated in advance of trial that the property damage to the herd occurred during the policy period of each policy at issue in the litigation.
Despite these factors, the Pennsylvania Supreme Court refused to extend J.H. France beyond the asbestos context, leaning heavily on the “special etiology and pathogenesis of asbestos-related disease,” in particular the long latency period, in doing so. Penn National, 106 A.3d at 22. This long delay prior to manifestation of disease could theoretically “engender en masse cancellation of occurrence-based liability insurance policies by insurers seeking to limit their liability for asbestos bodily injury claims.” Id. By contrast, the damage to the dairy herd manifested within a year of first exposure to the contaminated water and “did not lay dormant for an extended period,” lessening any possibility of mass cancellations. Id. at 23. Nonetheless, the court did note that the cows exposed to the Penn National gray water suffered a “gradual increase” in illnesses and other disorders ' similar to the way in which asbestos causes “discrete cellular injuries” over time that eventually manifest as disease. Id. at 6 n.6; J.H. France, 626 A.2d at 506.
Though the court attempted to parse the policy language in the J.H. France and Penn National policies, the court acknowledged the similarities in the respective policies in that both defined occurrence as “an accident, including continuous or repeated exposure to conditions, which result in bodily injury.” Ultimately, the interpretation adopted by the court in Penn National essentially contradicts the result in J.H. France. Compare Penn National, 106 A.3d at 18, with J.H. France, 626 A.2d at 506.
The Supreme Court also looked to a Pennsylvania precedent that had rejected an attempt to apply continuous trigger to claims for malicious prosecution, Consulting Engineers, Inc. v. Insurance Company of North America, 710 A.2d 82 (Pa. Super. Ct. 1998). There, the court considered the policy considerations that underpinned J.H. France: first, that the claimed injuries had lain dormant for years, and, relatedly, that the “intervening time period” between injury and discovery would “allow a risk aversive insurance company to terminate coverage.” Id. at 87-88. Because those risks did not pertain to a malicious prosecution case, J.H. France was not applicable. In Penn National, the trial court drew the further conclusion that such risks only arise in the context of asbestos, a view that the Pennsylvania Supreme Court seems to implicitly adopt.
Conclusion
Penn National is likely best read as a cabining by the Pennsylvania Supreme Court of the public policy issues attendant in asbestos cases. Though the court analyzed the policy language and applicable precedent, public policy concerns appear to be paramount. Implicitly rejecting policyholder arguments concerning the ostensible similarities between asbestos and other long-tail liabilities such as environmental contamination, the court signaled that policyholders may need to anticipate less friendly rulings in environmental and other “long-tail” coverage cases than has been the recent trend in other jurisdictions.
For a generation, courts have confronted difficult issues involving insurance coverage for asbestos, environmental, and other long-tail claims. A threshold problem concerns which policies are “triggered” for coverage purposes where exposure may precede manifestation of injury or other damage by many years or even decades. An approach to the trigger issue first widely adopted in asbestos coverage litigation was the so-called “continuous trigger,” or in some jurisdictions “multiple trigger,” which deems all policies in place from initial exposure through final manifestation (in some cases, death) to have been triggered, on the theory that injury from asbestos exposure is continuous through that entire period. In jurisdictions in which a continuous or multiple trigger has been used in asbestos cases, the same approach has frequently been adopted in environmental cases based on similar reasoning. Indeed, because “continuous trigger” is coverage-maximizing, policyholders have made attempts to apply the same approach in other areas, with varying degrees of success.
A very recent decision from the Pennsylvania Supreme Court, Pennsylvania National Mutual Insurance Company v. St. John (“Penn National“), rejected such efforts in an environmental contamination case, finding environmental cases insufficiently similar to asbestos and limiting coverage to only one of four available policies. The court's analysis and the result suggest a narrow view of the policy concerns presented by asbestos cases, and an inhospitable climate for future cases involving environmental contamination, and potentially other long-tail liabilities, in Pennsylvania.
'Gray Water' Contamination
In 2002, two dairy farmers hired a plumbing company to install a new water management system on their farm. The system consisted of a wastewater drainage system and a separate freshwater drinking supply. Due to the negligence of the plumbing company and its contractor, the wastewater system allowed “gray water” containing natural and chemical waste byproducts to infiltrate the drinking water used by the dairy cows. Beginning as early as April 2004, the farm observed a decline in milk production and an increase in rates of health and reproductive problems with the dairy herd, including unusual illnesses and birth defects in the cows. Though the farm tested the herd's water supply regularly, the contamination was not immediately detected because testing was conducted at the wellhead rather than the contaminated holding tank. Finally, in March 2006, the dairy discovered the source of the problems and brought suit against the plumbing company. Penn National, 106 A.3d 1, 3-4 (Pa. 2014). The case was tried to a jury, which found in favor of the dairy farm and awarded nearly $3.8 million in damages. Id. at 4.
The plumbing company was insured by Pennsylvania National Mutual Casualty Insurance Company (“Penn National”), which had issued three-year-long primary CGL policies during the period July 1, 2003 through July 1, 2006, and one umbrella policy that covered the period July 1, 2005 to July 1, 2006. After the verdict, the plumbing company agreed not to pursue an appeal and the farm waived all claims against it, in exchange for Penn National's payments of the full limits of one of its primary CGL policies, or $1.2 million. The farm retained the right to seek the remainder of its award directly from Penn National under the other CGL policies. Id . at 4.
Penn National then filed a declaratory judgment action, arguing that only its 2003-2004 policy had been triggered because the injury first manifested in April 2004. The farm argued that the appropriate trigger was when they discovered the contamination in March 2006, which would have triggered both the primary and umbrella policies in place at that time. In the alternative, the farm argued that the plumbing company's liability triggered all four policies under a multiple trigger or continuous trigger theory of coverage. Id. at 4-5.
The policies in question were “occurrence” policies, meaning that Penn National agreed to cover “bodily injury” or “property damage” caused by an occurrence taking place during the policy period. Id. at 5. An “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. For purposes of the litigation, the parties stipulated that the water contamination constituted “property damage” under the policies and that no exclusions applied. They also stipulated that the property damage to the dairy herd took place during the policy period of each of the Penn National policies at issue. Id. at 6.
The trial court nonetheless held that all of the underlying events constituted a single occurrence, which took place when the effects of the improper installation of the water system first manifested in April 2004 in the form of diminished milk supply. Id. at 7-8. The trial court rejected the “multiple trigger” theory because Pennsylvania courts had to date declined to adopt that approach aside from latent disease cases such as asbestosis or mesothelioma. Id. at 8. The dairy farm appealed to the Pennsylvania Supreme Court.
Continuous Trigger and Environmental Contamination
A multiple trigger theory (similar to the continuous trigger adopted in other jurisdictions) had been approved in 1993 by the Pennsylvania Supreme Court in J.H. France Refractories Co. v.
The policyholder in Penn National argued that the case presented a set of facts that called for an extension of the principles in J.H. France beyond the asbestos context. Certainly, a number of other courts have extended the same policy rationales present in asbestos cases to environmental cases and concluded that a multiple trigger theory under which policies were triggered because of continuous damage across many policy periods was appropriate.
In their briefing to the Pennsylvania Supreme Court, the Penn National appellants cited the growing “weight of authority” in favor of continuous trigger in environmental contamination cases in addition to asbestos cases. Brief of Appellants at *32, Penn National , 106 A.3d 1 (No. 09-6388) 2013 WL 4046303 (citing
The Vermont Supreme Court has also approved the use of a continuous trigger in environmental pollution cases in place of a manifestation trigger, declaring it “the approach most compatible with the standard occurrence-based policy and the reasonable expectations of the insured in cases involving long-term environmental damage.”
Indeed, in certain environmental cases, the name of the trigger theory being applied has not necessarily been determinative, with some courts applying the “injury-in-fact” approach for trigger in a manner indistinguishable from a continuous trigger. In EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd's, the New Hampshire Supreme Court was called upon to decide what trigger theory applied in an environmental pollution case. The court determined that, based on the policy language, coverage was triggered by an “injury-in-fact,” or a showing that bodily injury or property damage occurred during the policy period. 848 A.2d 715, 720 (N.H. 2004). However, because the evidence in the case showed that contamination was continuous, “the 'injury-in-fact' theory may also operate to trigger coverage on a continuous basis.” Id. (internal quotations omitted). In so holding, the court cited expert testimony that the tar released by EnergyNorth migrated for decades, causing continuous contamination to new surrounding areas ' essentially in the same way asbestos has been found to cause continuing damage to lung tissue once exposure has occurred. Similarly, with respect to other policies that “embodie[d] an exposure trigger, and where the alleged migration of toxic wastes [was] continuing, multiple exposures triggering coverage [were] also continuing.” Id. at 725.
In
By contrast, the
The Rejection of a Continuous Trigger in Penn National
For several reasons, the Pennsylvania Supreme Court might have been expected to join other jurisdictions in expanding the applicability of continuous trigger to environmental pollution cases and, potentially, other long-tail claims. The policy language at issue in Penn National was nearly identical to that of J.H. France, suggesting that it should be interpreted in the same way. The water contamination presented some of the same characteristics as asbestos exposure. Finally, the parties even stipulated in advance of trial that the property damage to the herd occurred during the policy period of each policy at issue in the litigation.
Despite these factors, the Pennsylvania Supreme Court refused to extend J.H. France beyond the asbestos context, leaning heavily on the “special etiology and pathogenesis of asbestos-related disease,” in particular the long latency period, in doing so. Penn National, 106 A.3d at 22. This long delay prior to manifestation of disease could theoretically “engender en masse cancellation of occurrence-based liability insurance policies by insurers seeking to limit their liability for asbestos bodily injury claims.” Id. By contrast, the damage to the dairy herd manifested within a year of first exposure to the contaminated water and “did not lay dormant for an extended period,” lessening any possibility of mass cancellations. Id. at 23. Nonetheless, the court did note that the cows exposed to the Penn National gray water suffered a “gradual increase” in illnesses and other disorders ' similar to the way in which asbestos causes “discrete cellular injuries” over time that eventually manifest as disease. Id. at 6 n.6; J.H. France, 626 A.2d at 506.
Though the court attempted to parse the policy language in the J.H. France and Penn National policies, the court acknowledged the similarities in the respective policies in that both defined occurrence as “an accident, including continuous or repeated exposure to conditions, which result in bodily injury.” Ultimately, the interpretation adopted by the court in Penn National essentially contradicts the result in J.H. France. Compare Penn National, 106 A.3d at 18, with J.H. France, 626 A.2d at 506.
The Supreme Court also looked to a Pennsylvania precedent that had rejected an attempt to apply continuous trigger to claims for malicious prosecution,
Conclusion
Penn National is likely best read as a cabining by the Pennsylvania Supreme Court of the public policy issues attendant in asbestos cases. Though the court analyzed the policy language and applicable precedent, public policy concerns appear to be paramount. Implicitly rejecting policyholder arguments concerning the ostensible similarities between asbestos and other long-tail liabilities such as environmental contamination, the court signaled that policyholders may need to anticipate less friendly rulings in environmental and other “long-tail” coverage cases than has been the recent trend in other jurisdictions.
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